Does regulation only bite the less profitable? Evidence from the too-big-to-fail reforms
Ulf Lewrick and
Aakriti Mathur ()
No 922, BIS Working Papers from Bank for International Settlements
Regulatory reforms following the financial crisis of 2007–08 created incentives for large global banks to lower their systemic importance. We establish that differences in profitability shape banks' response to these reforms. Indeed, profitability is key because it underpins banks' ability to generate capital and drives the opportunity cost of shrinking. Our analysis shows that only the less profitable banks lowered their systemic footprint relative to their equally unprofitable peers that were unaffected by the regulatory treatment. The more profitable banks, by contrast, continued to raise their systemic importance in sync with their untreated peers.
Keywords: global systemically important bank (G-SIB); textual analysis; capital regulation; systemic risk; bank profitability; difference-in-differences (DD) (search for similar items in EconPapers)
JEL-codes: G21 G28 L51 (search for similar items in EconPapers)
Pages: 59 pages
New Economics Papers: this item is included in nep-ban
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